The 9 to 16 Confinement of the Vix

The Vix Trading Range at Unprecedented Complacency

1. 

The first thing that would catch your eye about this chart is that the range highs and lows are subtle, as in saying the red rectangle above features some temporary highs where price might cross 15.5 and 16 and just break above for a few hours and then retreat.  Indeed that was the goal of this analysis to show that Vix in this era of massive complacency has a tendency of trading between a low of 9.5 (on average) and 16 height. 

Until the 16 barrier is broken we are still stuck in this confined area of lows and highs

There was a conventional belief years ago that the Vix normally would trade between a 20 where its very complacent and 40 and the Vix is overly cautious.  In this environment that is much different.  But here's what is different about this week, so far since it is only Tuesday the Vix has already printed some positive action.  

Another intense aspect of these declines is that they generally tend to fizzle out (the slide stops) between 40 and 47%

The steeper angle of this second image shows the opportunity still here in Vix.  It is always good to prepare.  The rises higher only happen less often but when they do, it typically lasts 5-7 days and the result is a much highly pointed angle with fewer days in its range.  

Zetetic Philosophy

Dimensions of the Rally - Dow Jones Industrial Average

Many traders have been climbing this wall of worry, that there would be a reason to fear an imminent sell off, but its a good thing we have technical analysis

1. The contraction from 11/9 to 11/17 [contained in the green shaded surge higher] was not enough to trigger its own frame in my model

• For example, the two swift slides from the late summer into mid September were just 3-4 day events which had no staying power, but they were deep enough to cause a more dramatic series of lower low price prints
• In our more recent example of price action, the decline from 11/6 to 11/17 was just shallow and impotent

 The current rally state changed dimensions from 22,250 to 23,847, a whopping 1,597 points

• Before today's long candlestick the highs were still contained slightly above 23,500 but were well overtaken by the charge higher regarding tax reform and other news related optimism.  

The greed machine has leveled up and for our sake complacency [Vix index] become even more out of balance.  Time will tell what this will bring, but if totday's action is any indication of the state of the rally it is still fully intact and resumed its winning position for the time being

Vix Attempts

What I would say is most unique about this Vix daily chart is that a hammer candlestick formation formed the day after Thanksgiving.  This stand alone bullish reversal did well on the weekly candle too, to make things even more stark, it was the only hammer printed and its lower wick is 5-6x the height of the body!

What I have done with this daily chart is I have superimposed descending trendlines along each of the downwaves to note time and magnitude

•  I have taken this chart and went from peak to trough as opposed to trough to peak, the 16.5 or near 17 to 9.5 [High to Low] range normally lasts between 20 or 23 days give or take a few churning or chopping days or when the market does put in minor tops it takes time before the bears can accelerate their plans.  A down market leads to a higher Vix.  
• This "completes" one of the longest down cycles in the Vix for this part of record for 2017; highlighting the off the charts complacency,  I am not saying it could get better or worse, but its powerful 
• The discount typically has lasted 40 to 46% that goal was met Friday with a the greater amount happening in the last few moments of trade
• I am not sure if the Vix matters anymore, the convention was that a low Vix was a warning sign, and not good for whatever record level of optimism that has set in

Normally the next 7-8 trading days are when the Vix takes off tremendously after the reversal and following slide in the S&P 500

This second chart of rising price but falling volume does not always end well or confirm that a move has staying power

Dollar Index Damage

Daily Chart of the US-Dollar Index

I have been using the 50 period simple (moving average) to gauge trend and one of the clearest forms of trend change came 9/27/2017 when it sliced through the 50 decisively and then continued marching higher until 12,097 about a week ago and then spend more time declining

The first arrow in yellow points out how fast price pulled back at the test of 11,900 and it was just the signal the dollar bulls needed to drive it to its price objective of approx. 12,100 there were plenty of sellers ready and willing to acquire Euros, Aussies, anything anti-dollar

The green rectangle acts as a buffer inbetween range points to tell whether levels are working as support or resistance and in our case right now its supportive at the upper border of the box at 11,962 that is also in close proximity to the second mean reversion [today's touch of the moving average]

Today's powerful bearish candle is exciting and somewhat climactic for the low volume trading environment of the Thanksgiving week, but it could be seen as a warning given what has happened to the dollar for most of this year.  

The Ebb and Flow

It may appear wonky on this daily chart that the Euro just acts the way it wants and can seem unpredictable in how it ranges and "breaks out" that if it does decide to trend in a particular direction the snap backs are vicious and it would appear to lack respect for support and resist points. 

So if any pattern can be gleaned off the charts here the price action points out how its been acting since 9/11/17 and by this we are talking about how it acts on the daily chart

• The mini peak at 1.20804  allowed for reversals and continuations to the downside which were longer in height and intensity (more powerful sell offs)
• The throw backs to the upside retraced 50 to 65% of the dominant move down, so it would give the impression that the path of least resistance was to the upside, ESPECIALLY on the bullish candle we printed on 11/14/2017 last week's push was slightly deceiving 

The swings have been one way or another, so in my view it doesn't act well in the sense that it wonks around and has more of a bulky and rectangular action, which is ok with excellent setups and a good feel for where we are at this point in trend

This sell the rally and buy the LOWER dip is still a good practice to have when the dollar index lurches higher here and there.  

Ideas on Trend Change Confirmation

I am throwing this back to when I was measuring the Dow 30 in terms of its geometric and area based facts.  It made its way all the way up to 23,619 and since then attempted to reclaim that level once at 23,565

The two shaded ovals denote where there is some buying action, meaning the discount of the yearly highs was quickly bought up; they sopped up the low prices with a decent amount of deman

Being that the price was tarnished already: 23,247 it could be relatively stale going forward should we decide to claw through that level and continue trending to the downside [descending trend line captures most of this pullback]

I don't know how fast or how much lower things can go but on the daily chart the pattern is beginning to emerge. 

• We have undercut several lows
• The highs are being wiped out by a bigger amount of sellers

The confidence in short selling will return at least that is how the charts are acting.  

Scalping Counter Trend AUD related pair

Reason for Buying Aussie Dollar AUD/USD

1. Bullish reversal candlestick: Hammering in a potential bottom for the short term

* could prove to be a weak Bullish Candle

1. Climactic excitement on the two hour time frame of a 60 pip drop from a opening candle of 0.76310 to 0.75739, possible short squeeze 
2. Pre-set targets hit for low prices sought out, I was looking at these levels before as in buying near 75, bottom fishing at the lower points, dollar continued trading weaker for other parts of this morning 

I don't see much reward in this trade but it will be interesting to see how it acts along with the Dollar Index.  

Points of Exit and Hitting Targets

For the times that I have flirted with VXX and had profitable trades they were mainly on closing a big portion of shares like 50% and 75% in that day.  So in the end of this post I will discuss targets and the strategy for getting out at optimized levels.  

• This type of trade needs to be hedged with XIV or other short volatility instruments for the longer holding periods
• Opportunities are very short lived because of how quickly it changes in a reaction greater than the broad market

At first glance its really obvious this is a negative and bearish chart pattern.  But, I feel as though there is an opportunity here.  These are the technical reasons

• The exhaustion from short sellers of volatility has reached a semi-climax (not absolute) but there is reason for them to pause and the amount of time gone by has been tremendous, there is going to come a time when price reach equilibrium and now its so low on the curve its about time for another phase of the cycle to kick-in where volatility turns higher
• The inverted dome:  the price pattern shown here shows two main turning points 33.67 and 33.19 with 33.19 being the most recent, the tightness of its trading range is another clue as to why price ranges should begin expanding again 
•   In spite of the color of today's daily candle, it still turned much higher at the end of the day and made for a lot of excitement and bullish price action so the CLOSERS ended up driving it higher than yesterdays close [higher highs and higher lows]
• 10/25/2017 the entire range was 3.37 with the quick burn out from the days highs, this type of movement can repeat itself but with how well coiled price is I expect more of a 3.8 or 4.0 point move
• Volume is terribly low, non-confirming for the volatility bears

Points of Exit for long positions

• 40, or just a few notches higher
• Absolutely 47.5 - 50 and these are for the next few weeks
• Lastly if it moves so much faster than I can anticipate then I would look for the previous price spikes from August 8/10 and 8/16 and the mid June levels if they could be revisited